There was a time when daily deals site Groupon (NASDAQ:GRPN) was seen as the shape of things to come for the e-commerce arena. Consumers didn't have a way of exploring all their local deals, and small, consumer-facing companies didn't have an effective means of connecting with nearby shoppers. Groupon was that much-needed digital marketplace when it first launched in 2008.

Much has changed in the meantime but not in the way many investors imagined. Rather than evolving with Groupon, consumers and small businesses have evolved around it. The company's top line has not only been shrinking since 2015, but its decline has accelerated over time. Ditto for its rather erratic income.

These two downtrends should keep Groupon off of anybody's buy list despite relatively rosy growth projections.

Metallic dice with the words "buy" and "sell" facing up, lying on a stock chart.

Image source: Getty Images.

Nothing's actually rekindled growth

The basic premise still makes sense on the surface. Groupon does what local businesses can't easily do for themselves, which is give consumers a specific reason to patronize their shops. By offering prospective customers a discount on services or goods, the website can spark those connections.

In the company's third-quarter report, interim CEO Aaron Cooper said, "The entire Groupon organization is focused on returning the company to growth and in the third quarter, we made notable progress." That almost implies the company only needs to make a few tweaks to rekindle progress that was otherwise hampered by the COVID-19 pandemic.

But it has been years since this company has generated any actual growth to return to.

The graphic below puts things in perspective. Sales have been falling (again) since 2017. The bottom-line rebound that started to materialize in 2017 buckled last year, as did free cash flow. The pandemic took a big toll on this year's revenue and profitability, as could have been expected. But both were already heading downward before COVID-19 took hold.

Groupon's cash flow and income is expected to recover after COVID, though both were in a freefall before the pandemic took hold.

Data source: Thomson Reuters. Chart by author.

Yes, analysts are modeling for profit growth to return next year, even though revenue is expected to continue sliding at least through 2023. Hope for that turnaround is bolstered by a newfound realization from the company itself. Groupon's third-quarter report explained: "Our most critical priority is to expand inventory, which we believe is essential to future billings growth. Our second priority is to modernize the marketplace by improving the merchant and customer experiences." To this end, the company increased its ad inventory by 50% in the markets where new initiatives are being tested.

The problem: We've seen various strategic initiatives from Groupon come and go over the course of its existence, none of which appeared to bring a halt to its decline.

For example, in 2015, then-new CEO Rich Williams explained, "[W]e will renew our investment in customer acquisition to introduce more new customers to our marketplace and accelerate growth," adding, "we will shift our Shopping category away from lower margin 'empty calorie' products to grow a sustainable, healthy Goods business with stronger margins." Early this year, however, the company saw fit to completely reverse course from that strategy, noting: "We shifted our strategy toward turning Groupon into the local experiences marketplace. As part of this strategy, we plan to exit our Goods category in 2020."

Williams also prioritized streamlining the company's international operations in 2015, seemingly forgetting that Groupon struggled mightily in China just a few years earlier for reasons that had far more to do with costs related to penetrating the market. Groupon just didn't understand China's consumers.

GrouponLive -- meant to sell tickets to live events -- is another non-game changer, as is thus far the membership program called Groupon Select. Indeed, the company's customer count has been shrinking for years now.

A philosophical flaw makes it uninvestable

Perhaps the problem, then, isn't so much Groupon but the business model itself. It's just not sustainable -- the deals being offered either cost local businesses too much to honor for very long, aren't good enough to actually entice consumers, or cost Groupon too much money to make the customer-business connection.

To this end, know that both Amazon and Google have both tried to compete with Groupon on the local daily deals front. Google Offers has since become unrecognizable from its previous standalone format, being folded into the company's other e-commerce offerings. Amazon has abandoned the effort altogether. Both organizations presumably realized local businesses couldn't consistently offer deals that were generous enough to justify each consumer-tech giant's related costs.

And it's this last idea that calls into question those analyst projections for profit growth through 2024, which don't coincide with a sales growth projection. Bringing customers into the digital fold is expensive, and it generally doesn't get cheaper no matter how good at it you get. Even powerhouses like Amazon and Google are now finding they're forced to spend relatively more and more on marketing and traffic to drive sales growth.

There's certainly been no shortage of critics pointing to this gaping fiscal flaw since Groupon's earliest days as a publicly-traded company -- philosophical doubts that are still being dished out. They'll continue to be dished out as long as the company only offers something local business can either now do for themselves or want done differently than what Groupon can offer.

So no, Groupon isn't a buy. It would take a pretty radical reimagining of what its business is to reverse its fortunes, and that just doesn't seem to be on the horizon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.